As a UK-based investor, I spend a lot of time searching for UK shares to buy. But my other favoured market is the US. There’s no doubt that the market offers me huge opportunities to invest in exciting growth shares. It has a dominant technology sector in particular, with companies such as Apple, Microsoft and Amazon. But in my search for income and cheap stocks recently, it’s been the UK market that has stood out.
So, is it a great time for me to buy UK shares? Let’s take a closer look.
Sky-high dividend yields
The best place to look for dividend stocks is the FTSE 100, in my view. It contains many companies that pay considerable dividends. Some even offer double-digit yields as I write today.
For example, Rio Tinto has a dividend yield of almost 14%. It’s a mining company with considerable exposure to iron ore. The price of this commodity rocketed last year, which meant Rio Tinto has been able to pay super-high dividends. However, it’s expected to fall in 2022, but the forecast is still for a yield of 8.3%. Dividends can always fluctuate, or worse, get cut if businesses underperform. Nevertheless, I view the prospects for Rio Tinto favourably due to the essential minerals it produces for electrification and decarbonisation efforts.
I find it useful to compare the FTSE 100 dividend yield to other markets too. In this regard, the FTSE 100 has achieved a 12-month yield of 3.8%. By comparison, the S&P 500, the US equivalent large-cap index, has a 12-month yield of 1.3%.
Therefore, even if I bought the iShares Core FTSE 100 ETF instead of single stocks (which is more risky), I could still pick up a respectable dividend yield.
Cheap UK shares
Focusing on the FTSE 100 again, and the forward price-to-earnings (P/E) of this index is a lowly 12. For additional reference, it hasn’t been this cheap since way back in 2012. The S&P 500 is rated on a much higher forward P/E of 21.
There are some cheap stocks in the FTSE 100 as well. Lloyds is currently valued on a P/E of 6.5, and may stand to benefit if interest rates rise. ITV also looks cheap on a P/E of 7.7 if it’s successful in its pivot towards on-demand viewing.
I do have to take into account growth estimates for UK shares though. As it stands, City analysts are forecasting earnings growth for the FTSE 100 of only 4% in 2022. This isn’t too exciting if I’m looking for growth shares. I still think I can find growth stocks if I dig a bit deeper into the FTSE 100 index though.
Is it a great time to buy UK shares?
As an investor, I always have to look at the risks ahead. By their very nature, I’ll never know for certain what all these risks might be. A good example of this was in February 2020 just before the stock market crashed due to Covid.
However, I see an abundance of opportunities in the UK market today for a long-term investor like myself. I’d snap up some of the cheap, high-dividend-yielding stocks on offer.
